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Tuesday, January 23, 2018

Is The Bubble Going to Burst?

By now you've probably heard that the real estate market has been going like gangbusters the last couple of years.  Some areas of the country have see an increase of 10%, or more, in values the past couple of years.  Agents are excited and sellers are ecstatic.  However, is there something looming out there?  Could we be headed for another major market correction, like the one in 2007/2008/2009?

I'm not usually a doom-and-gloomer.  However, I know enough to know when the value on anything raises too fast there may ultimately be a downward turn.  This is true of stocks and it's true of housing values.  The market is always cyclical. However, when things turn up so quickly and with such force there is always a greater chance of a "correction."

So, here is my fear.  In my market for the last couple of years (especially 2017) there has been supply/demand problem.  This is true for many markets, but it's been a major problem for my market.  So, what happens?  Well, you have constant bidding wars.  And what do bidding wars do?  They drive up the price of a home.  And while that sounds like a good thing it may not be.  Yes, we all want the value in our markets to rise.  But, we want true value, real value.  What do I mean by that?

When buyers get into bidding wars the home almost always sells for over list price, sometimes dramatically (I've seen them go 10% over and I've heard worse).  But just because a buyer is willing to pay $XXXXX for a home does it make it worth that much?  You've probably heard "well, a home is worth what a seller is willing to sell it for and what a buyer is willing to pay for it."  Isn't that true? Well, no.  Let me explain.

Ask an appraiser or a real estate broker how they determine the value of a home.  There are (3) ways: 1) the cost approach, 2) the income approach, and 3) the sales comparison approach.  For most homes we use the "sales comparison" approach.  This means "comparing" other homes to the one that is for sale and determining, based on several parameters, what a home "like" the one for sale should sell for.  We look at other homes, or "comps" that are similar, are in the area, and have sold recently (usually six months to a year).  By doing so we can see that the "subject" should sell, basically between the high/low values of the comparable sales.  Keep in mind this is somewhat subjective, but it gets us a basic determination of value.  If the "subject" has a lot of updates we feel it will probably sell toward the high end of the comparable sales.  If it has few updates, or needs repairs, it will normally sell toward the lower end of the comparable sales.  There are always variations, but this is always how we determine the "market value" (and potentially the sales price) of a home that is currently for sale.

So, go back to what I said.  If a house is listed for $200,00.00 and it gets multiple offers on it, one for $220,000.00, does that now make it worth that much?  No, not unless the comparable sales can justify it.  So, if the highest comparable sale is for 180K, is it likely that this home is worth 220K?  No, it's not.  So what happens?  Well, sellers, with prompting from their agents, have become very aggressive.  They have begun to tell buyers that they will not sell the home "based on the appraisal amount."  In many purchase contracts there is a clause that says the buyers don't have to proceed with the sale if the "appraised amount" is less than the contract amount. (the appraisal is done by the appraiser, a third-party contractor that the bank highers)  In essence, it's a measure to protect the buyer from over-paying on a property.  But sellers are "forcing" buyers to remove this clause.   So, if that clause is removed then the buyer must proceed no matter what the value comes in at.  So if the house under-appraises for 20K the buyer must still purchase it, and normally must bring $20,000 more as a down payment (because the bank will not loan for more than the value!).  In essence, the buyer has now agreed to over-pay for the home by 20K.

You would think that buyers would be more prudent than to agree to something that will, basically, cost them money.  However, buyers tend to be fearful and under-pressure in a market where everything is tilted toward the sellers.  Unfortunately, I see this mostly with younger buyers who have an "I want this at all cost" mentality.  To be fair, though, there are times when you have to be aggressive if you want the home that you have chosen.  This is true, for sure, but what I've see lately 
is way off the scale of "paying a little more" and being "strategic."  Buyers, in come cases,  are giving up the farm and, I think they may end up paying for it in the long run.  Sellers are smiling all the way to the bank.  However, most sellers are also buyers, so I think some of them are also acting in the same manner when they end up buying their next home. It becomes a vicious circle.  And so, IMO, we get many months of "inflated" home values, with people paying more for homes than they are actually worth. 

Well, as long as values keep going up, all is well, right?  Well, yes.  But that never truly happens.  For example, even if the market flat-lined in 2018 we would have problems.  Why?  Because people who over-paid in 2016 and 2017 are not going to "realize" the value of their homes in 2018.  They, technically, could be under-water on what they owe.  Well, that's not a problem...if they don't have to sell, right?  Yes, but what if we have a down turn in the economy?  Some type of world event?  What if the economy just slows down as well?  People end up selling after a couple of years all of the time.  And what happens when these people who purchase in the last couple of years have to sell in a market down turn?  They end up losing money, because they over-paid and the market caught up with them.  See this new article from Bloomberg, posted 02/22/2018   Is the Market Too Hot?  

I think many buyers, sellers and agents are complicit in creating "inflated" values in the current housing market.   That being said, I don't think everybody is making bad decisions, and I don't think there is some type of conspiracy.  However, I think some agents for sellers and buyers are not properly advising their clients. And I also think some buyers are becoming increasingly short-sighted and are not realizing the potential consequences of being pulled into bidding wars and over-bidding by exorbitant amounts, just to "win."  I like to win, too.  But I think the desire to "win" has to be offset by making good financial decisions.  Yes, it's a difficult market.  But I do believe there is a middle ground to all of this.  It is my hope that in the coming year we will start to see a more "balanced" market, one that is good for all parties. 


Friday, January 15, 2016


You are probably aware by now that the real estate market in many areas has picked up dramatically.  In some areas houses are getting multiple bids and many homes are going for way higher than asking price.  If you've been trying to find a home lately you might be experiencing some frustration by what's been happening.  Here are some things to consider if you are having trouble either finding a home or getting homes that you've made offers on:

1.  Are you positioning yourself so that your offer is getting taken seriously?  Do you have a "pre-approval" letter from a lender that you have sent to the seller?  Is your offer written in professional, readable format?  Are you using an experienced agent who works mostly (if not only) with buyers?

2.  Are you under-bidding on properties that are new to the market and have several interested buyers?  If a listing is new and hot it's not going to sell for way under list price.  Why, then are you trying to get a steal on it? You're probably spinning your wheels and wasting your time and your agent's time.  Get serious or you will be left out.

3. Are you adding extraneous contingencies in your offer to the seller? Are you asking for everything under the sun in the offer?  In a competitive market you can't expect for sellers to agree to things that other buyers aren't asking for.  Keep your offer simple so it's attractive to the seller.  Maybe even do some recon and find out what kind of terms the seller is looking for in the offer before you send it.

4.  Do you have a home to sell?  Unfortunately, this is a killer in a strong seller's  market.  If you are up against a buyer who does NOT have a  home to sell you will likely loose in a bidding war.  Even if your home is in contract (in escrow) you are at a disadvantage when competing with other buyers.  Alternative?  Sell your home first and then work on finding a  new home.  
5.  Are you looking at homes that are out of your price range and then hoping that the seller "might" come down?  That doesn't happen in a seller's market.  What happens many times in a strong market is the house actually sells for more because several buyers get involved and it basically becomes an auction.  If you expect to negotiate hard on the price of a home in a seller's market you will be thoroughly disappointed.

 6.  Are your search criteria too narrow?  Do you want too much in a home for what you can afford?  Consider expanding your search area and/or things like # of bedrooms, # of bathrooms, size, etc.  Be realistic about what you "need" vs. what you "want."  Maybe you can do with (1) less bedroom, or a home that is a bit smaller.  Maybe there is another location that will work for you.   In a tough buyer's market you will find that you will have to make compromises or you may not find a home that you are satisfied with, ever.  Be flexible and open to other options.

Be a Winner!
7.  Do you have a sense of urgency?  Do you really want to buy a home, or are you just tire-kicking?  If you've told your agent "Well, I'm not in a hurry to buy" or "I'll buy a home if I find the right one" or "I just want to see what's out there" you probably aren't motivated.  If this is the way you feel maybe you should put your search on hold until you are serious about buying a home.  In order to buy a home you must be ready, willing and able. Are you?


Tuesday, January 6, 2015

(5) Questions to Ask Your Potential "Buyer's Agent"

So, you are first-time home buyer and you're thinking about buying a home.  And you want to know where to start.  One good place to start is knowing the right questions to ask when to comes to finding a good Realtor.

Here are some tips for you:

1.  How long have you been a Realtor? 

No, Longevity isn't everything, but it sure is right up there at the top.  Do you really want to be a new agent's guinea pig?  There are just things that new agents don't know and don't know they don't know.  Find out how long the agent you're considering hiring has been an agent AND how long they have been a full-time agent.

2. How many transactions do you do per year?

Again, numbers aren't everything.  However, if you are talking to an agent who answers "10 years" to the first question and answers "5" to this one you may want to keep looking.  Even in rough times most agents do 8-10-12 transactions a year.  Many agents even do much more than that.  Any agent worth his or her salt will answer this question for you.

3.  What type of people do you work with?

Now, I don't mean anything that has to do with a protected class here.  However, does the agent work with primarily buyers or sellers, or an equal amount of both?  Many buyers find a "popular local Realtor" and want to interview him/her, not realizing that many, if not most, successful Realtors work mostly with sellers, and occasionally practice dual agency.**  If you are a buyer shouldn't you be looking for an agent who primarily (or only) works with buyers?  Also, does this agent work in the areas and the price range you are interested in?  Many experienced agents like working with high-end buyers and tend to let someone on their "team" work with buyers who are looking for more moderate housing.  Find an agent what works with buyers mostly and that understands the type of buyer you are and who doesn't target only one "type" of buyer.  

4.  Why should I pick you?  What sets you apart from other Realtors?

I get asked this one sometimes.  Frankly, I'm surprised I don't get asked this more often.  When I interview somebody for a service I almost always ask them this question.  Realtors are quite varied in their education, style, personality and experience.  I think that Realtors are probably the most broadly represented group of people you will ever meet, at least that's been my experience.  Find out what your potential agent's strengths are.  Ask them what their "style" is when it comes to dealing with other Realtors.  Ask them how they handle conflict and how they deal with their client's needs.

 5.  How do you handle Dual Agency?

Yes, being a broker who only works with buyers I have to throw this one in there.  But, it truly is important.  Do you, a potential buyer,  know what Dual Agency is?  Do you know how it may affect you as a first-time buyer?  Did you know that the average buyer loses $5000 by using a Dual Agent?**  Do you understand the tightrope that dual agents must walk when practicing Dual Agency?  Do you understand WHY Dual Agency is not desirable to most buyers?  Do you realize how you can find yourself in a Dual Agency situation?  Find out if your potential agent handles this type of situation before it comes up! If your potential agent is partial to Dual Agency you may want to consider another option.
Of course, there are many questions you can and should ask any prospective Realtor.  But I think these (5) are probably the most important ones.  Most importantly, be prepared when you are interviewing a Realtor.  Don't be afraid to ask questions.  Remember, it's an interview.  Don't let any Realtor who you may have the potential to work with take advantage of you or mislead you.  Be prepared!


Wednesday, August 20, 2014

So You Want to Buy a Bank-Owned Property?

Ah, yes.  Everybody wants a deal, right?  And of course, bank-owned properties are always a great deal!  I mean, that's what everybody says, right?  Not so fast, my friend...

Certainly bank-owed properties CAN be a good deal, depending on the circumstances.  I'm referring to foreclosed properties, NOT short-sales, otherwise know as "REO's," "corporate listings" or "repo's."  But there are some things you need to know before you decide to buy a bank-owned property.

1.  Not all bank-owned properties are equal.  Meaning they can be in any state of disrepair.  Some just need paint and carpet, some need a total rehab.  Are you up for doing a rehab on a property?  Do your research on what kind of time and investment you will have put into doing a rehab on property.  It is not for the faint of heart.

2.  Most, if not all banks require additional contract addenda.  They can be a few pages up to (30) pages. All of these addenda are designed to protect the bank, NOT you.  Be very careful when agreeing to language that is not "standard" for your area and is drafted by a bank.  There is language in bank addenda that can really get you in a bind if you don't understand what you are signing.  Consider getting an attorney for a bank-owned property.  Potentially, get an attorney for any transaction.

3.  There are different kinds of bank-owned properties.  Fannie Mae, Freddie Mac, traditional-bank, FHA (HUD) and VA.  How they are marketed and how they are purchased is different.  Understand exactly how the transaction works with that particular bank.  Each has different conditions and different terms, and some give you more/less financing options.

4.  Financing a bank-owned property can be a challenge.  If you are trying to buy a bank-owned property using standard FHA or VA financing you may have issues.  If a property has ANY major problems and/or some "medium" problems you may not be able to get financing.  Why?  Because the FHA and/or VA appraiser (and the underwriter) will require the home to be in mostly "good" condition.  If it is not, you can't get a loan for it.  All utilities have to be in working order, no water leaks, no roof leaks, no water problems in basement, no broken windows, etc.  FHA and VA are very picky, the are trying to protect you as a buyer.  However...

5.  Some FHA (HUD) homes can be purchased with an FHA loan no matter how bad the condition is.  HUD decides this when the appraise them.  So, if a HUD house is listed as "insured" or "insured with escrow"  it can be purchase with an FHA loan.  "With escrow" means that there are items that need to be fixed but they will allow you to "escrow" (set aside) additional money to do the repairs after you purchase the home.  Basically, they determine how much the repairs will be and they add that number to your mortgage amount.  Then after closing you have the repairs completed and they get paid for out of your escrow account.  Note:  if a HUD house is listed as "uninsured" it can only be purchased with "conventional" financing or with cash, no exceptions.

6. As I said, many bank-owned homes cannot be financed, even with conventional financing.  How can that be?  You mean they only accept cash?  Yes, this is true for some homes.  However, there is an exception.  If the house is in major disrepair you may be able to do a "rehab" loan in order to purchase it.  FHA has two of them:  203K and 203K Streamline.  There are also conventional rehab loan products out there.  If you are interested in something like this talk to your local lender or google "rehab loans."  They can be a bit tricky, are they are not for the fainthearted.  The terms and costs are different and the can be a bit complicated.  Do your research before you decide to go this route.  And no, you can't just "add money on the top" of a standard loan if a house needs work.  You may have to do a rehab loan or pay cash for it.

7. Bank-owned properties are "AS IS," which typically means "what you see is what you get."  It also normally means that the bank may not do any repairs on the property and it always means that there is NO PROPERTY DISCLOSURE so you may not know what you are getting into.  You will have to have a thorough inspection by a qualified inspector.  Once you buy a bank-owned home you are stuck if you find problems later.  You will not have any recourse against the bank if you find things wrong that were surely wrong before you bought it.  You are stuck.  With a normal seller you may not always have recourse if there are problems after the closing but sometimes you can get a remedy.  With a bank-owned property you are stuck, period.  And you will sign multiple documents stating that you understand this.  

Take your time, do your due-diligence and do your research if you want to buy a bank-owned property.  They are not for everybody, but they may be for you.

Happy hunting!                      

Tuesday, November 26, 2013

Want to Buy A Home? Get Pre-Approved First!

If you've read my other blog postings you'll see that there is an order of things with regards to purchasing a home.  You need to get your ducks in a row.  And, to quote an old standby, you shouldn't go off half-cocked.

My last posting talked about finding a agent before trying to find a home.  Are you with me so far?  What's next?  Start looking at homes?  Absolutely not!  The next thing you need to do, unequivocally, is to find a good mortgage lender and get pre-approved!

One would think this be obvious.  Why would anybody look at homes (or anything, for that matter) if
they don't have enough money, or don't have any money?  This is not just about common sense, mind you.  It's about getting yourself in a position to be able to move on a property when you find what you want.  It's about being strategic in your quest to find a home and making sure you are in a position to actually buy the home you want when you find it.

There are several reasons why you should be pre-approved by a qualified lender before you look at homes.  What are they?

1. You know you are able to purchase a home.  There is little doubt that you will get final approval from a lender if you are able to get a pre-approval.

2.  You will know what you can afford.  Do you want to spend a bunch if time looking at homes that you cannot afford?  I can assure you, your agent does not want to show you homes that are out of your price range.  You time is valuable and so is your agent's.

3.  You look like a ready, professional buyer when you make an offer.  What's the seller's biggest fear with most buyers?  That they won't offer enough?  No.  A seller's greatest fear is that you won't get approved for a loan.  A pre-approval removes almost all doubt from even the most fearful seller.

4.  If you are in a bidding war with another buyer who does NOT have a pre-approval which offer do you think the seller will take?  This one is obvious.  If you don't think this is true go make an offer on a property against another buyer who has a certified, valid pre-approval.  You will loose.

 5. Being pre-approved gives you more flexibility on the closing date.  Why is this important?  Because if the seller wants to close in (3) weeks and you aren't pre-approved it probably ain't gonna happen.  So will the seller kick your offer to the curb?  Most likely.

Do yourself a favor if you are considering buying a home: get pre-approved.  It usually doesn't cost anything and many lender can do it over the phone.  What possible reason could you  have for not doing so?

One last thing:  don't confuse the terms "pre-approval" and "pre-qualification."  Pre-approval is what you are looking for. Pre-qualification isn't worth the paper it's written on.

Good luck, and as always, happy hunting!


Monday, November 4, 2013

Stop Looking at Homes....

And Start Looking For an Agent!

We've all heard the expression "don't put the cart
before the horse."  Unfortunately, that is what many home buyers do.  How's that?  They go on-line to various websites and start shopping for homes.  "Jim," you say, "why is this a bad thing?"  Well, read on....

First off, as a buyer, you really want to learn what it means to actually buy a home first. There are so many things buyers, especially first-time buyers, do not know about home buying.  And many of those things can be answered by a competent buyer's agent.  The home buying process is much more complicated that just "picking a home" off of the internet and going to see it.  That really isn't the way a buyer should proceed.

It's very important as a buyer to have the proper foundation and understanding about how the process works.  I spoke about this in one of my previous postings (see: I Just Want to Look At Homes).  If you are out there just plinking around on the internet you are really not ready to buy a home.  You may think you are, but you are probably not.

Yes, I know it's fun to window shop.  I do it all of the time on E-Bay and Amazon. But as I said, that isn't really how you buy a  house.  Why?  Well, first off, if you do not have a buyer's agent and you actually see something on the internet that you want to see and potentially buy did you know the agent listing the house is working for the seller, primarily?  You can easily fall into a Dual Agency situation, which is the absolute worst situation you can be in as a buyer.  Buyers who end up in a Dual Agency situation are typically not educated buyers and they typically regret it.  Basically, this is where the agent selling the home ends up "representing" you and the seller at the same time....and gets double commission for doing it.  If you want to know more about the perils of Dual Agency just Google it.

Why else is it bad to shop for homes before having a buyer's agent?  Because much of the data that you see out there on the web is inaccurate and/or outdated.  Many of the homes you see on various "home" websites are either "in contract" or have already been sold.  Problem?  These sites are not regularly updated and the data is not in real-time.  How do you like looking at homes on a website and then finding out that half of them are already sold?  This does not happen if you have a buyer's agent that you have established a relationship with.  Why not?  Because a buyer's agent has access to the local MLS (Multiple Listing Service) which is were ALL listing data comes from.  Nothing you will find out there is as current as the MLS for your area.  It is the most accurate, real-time data base that is out there.  And in most locations the MLS can send you updates automatically as soon as they are on the market. Of course, unless you establish a relationship with a buyer's agent you can't get access to these listings.

Again, I know you like to browse.  Not a problem.  Get a buyer's agent to set you up on the MLS search so you can get all current listings and keep browsing if you want to.  Keep in mind that the data from MLS is more current, so you will see homes that show "available" that are not.  That is not a problem with the MLS, it's a problem of data management with the website that shows it as available when it's not.  Basically, all available listings will be sent to you.  If you find a listing on a website that matches your criteria but does not show up in the listings being sent to you by your buyer's agent then 99% of the time it's not available. How much time will it save you to get accurate, real-time listings and not have to keep browsing home websites hoping to find a home that you like AND that's actually available? 

A buyer's agent is also there to answer your questions and guide you in the right direction.  He/she is on your side, and is there to help you make an informed decision, not to "sell you a home."  Do you really want to continue to call/e-mail random seller's agents on these listings, hoping that they respond?  Half the time the agents don't even respond to you.  And when they do they just want to talk about how great their listing is and push you into buying it.  Is that really what you want? YOUR agent will get you the information you want in a timely manner and not try to "push" any particular home on you.  Again, your agent is in your side, and is there to help you make an informed decision based on unbiased information that he/she has provided to you, based on what you want.

Now go find yourself a good, competent, experienced buyer's agent.

Tuesday, March 19, 2013

What is "As Is?"

So, the situation is that you want to buy a property and the seller says it's "as is."  What exactly does that mean?  Are you stuck with it if you find out something is wrong after the seller accepts your offer?  Will the seller negotiate any repairs?  Will the seller negotiate the price after the home inspection?  Does "as is" mean the property is in bad condition?  Does this mean there are problems that the seller doesn't want to disclose?

"As is" is very common these days, especially with sellers who have no equity and with the huge influx of bank-owned properties and short-sale properties.  Normally, you will see "as is" associated with bank-owned properties, short-sales, auction properties, sheriff sales, and estate sales.  If it's a "normal" sale the home will not usually be sold "as is."

Basically "as is" means this: the seller will not fix anything.

Does that mean you cannot have a home inspection?  No, it does not.  Keep in mind that the purchase contract always controls every transaction.  And while "as is" may be the way the property is sold, most sellers will still allow you to have a home inspection.  However, regardless of what your inspection determines, the seller will make no repairs.  Again, this is common with bank-owned properties, where the seller (the bank) doesn't want to mess with it.  That being said, most contracts include a clause that says that the buyer can get out of a sale if they find things wrong that they are not comfortable with, even if the property is listed "as is."

So, we know the seller wont make repairs, but will they lower the price?  Sometimes, it just depends.  This is an option, and banks can be open to dropping the price based on things that come up during the home inspection.  Sometimes they will negotiate, and sometimes they will not.  It really just depends.  But many times it worth trying.

Are "as is" properties always in bad shape?  No.  They can be, but just because a property is listed "as is" doesn't mean it's a total rehab.  Again, it just depends.  On things like an estate sale the family involved probably doesn't know anything about the property and just wants to get rid of it.  "Not knowing" doesn't mean it's in serious disrepair, it just means they don't know, and they don't want to deal with a laundry list of repairs.  Either you want it, or you don't.

On short-sales where the property is "as is" the seller has no money, and is upside down on their mortgage. The bank will not let the seller make repairs and the bank, who is directly involved in the short-sale, will also not make any repairs because the loan is already upside down and the bank is already in the hole for thousands of dollars.  They don't want to take another hit for repairs, they're already losing money.

"As is" doesn't necessarily mean the seller is hiding something.  Again, banks and estates rarely have any direct knowledge of the property.  Basically, they don't know about the condition and they don't care.  In some cases, the seller has to provide a property disclosure, in which the seller discloses what they know/don't know about the property.  These disclosures vary from state to state, and in general, banks and the like are not required to provide a property disclosure.  See my previous posting on seller's disclosure.

One last thing: if the property is "as is" because it IS in bad condition that makes buying it with a mortgage particularly challenging.  Many "as is" properties will only sell with cash or with a special financing program that takes into account the condition.  But that's a blog post for another day. 

I hope you are now an expert in "as is" properties.  Happy hunting!